Josh Barro on why RI’s economic problems are so intractable
May 4th, 2012 at 3:45 pm by Ted Nesi under Nesi's Notes, On the Main Site
One of the biggest problems in Rhode Island policymaking, I think, is a lack of perspective – the state’s problems are looked at narrowly and locally, without paying nearly enough attention to national and global factors.
Forbes’ Josh Barro, one of the smartest analysts in the country today and a Nesi’s Notes favorite, isn’t stymied by that, since he lives in New York City. But he’s been keeping a close eye on Rhode Island over the past year and a half, and he’s got some important insights to offer us:
Within New England, Rhode Island faces a major structural disadvantage. Rhode Island’s per capita income in 2010 was $27,700. That’s actually slightly above the national average, but it’s far below Massachusetts ($33,200) and Connecticut ($35,100).
As a result, Rhode Island has both higher taxes and lower public expenditure than its neighbors. As of 2009, Rhode Island collected 10.1 percent of state GDP in taxes, outstripping Connecticut (9.9 percent) by a little and Massachusetts (8.9 percent) by a lot. But despite that, Rhode Island governments had only $4,638 in per capita tax revenue to work with, less than Massachusetts ($5,014) or Connecticut ($6,434).
In other words, any given Rhode Island taxpayer can expect tax savings by moving to Connecticut or Massachusetts, where he or she can also expect more generous government services. As such, it’s really hard for Rhode Island to stay competitive. Trying to match its neighbors on service delivery will mean having an outsized tax burden, and trying to match their tax rates means providing a lot less government.
(That may explain why Rhode Islanders feel overtaxed and think government services are inadequate.)
The whole article is a must-read for Rhode Islanders (and not just because I may have goaded Josh into writing it on Twitter). Fair warning – his conclusion will be a little depressing for locals. But if he’s right, we ought to start having a much more difficult, more nuanced conversation around here.
Tags: economy, josh barro, state government, taxes
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
Mr. Barro says we need a niche specialty. How about a deep water port? Oh, that’s right, we shot that down.
The NIMBYs won that one by getting Carcieri in office.
Rhode Island has a larger percentage of metropolitan area versus suburban area. If we gave Providence, Pawtucket, Central Falls and Woonsocket to Massachusetts the outlook would be decidedly different.
Shorter Josh Barro: Rhode Island is poor compared to its neighbors.
Sorry Ted, but where’s the workable advice here? Cut government and we can’t compete on services. Raise taxes and we can’t compete on taxes. Basically, we’re still at where we all know we are: looking for an economic miracle or the Next Big Thing to help return RI’s economy to its past glory. Neither side (raise taxes, cut government) addresses that underlying problem of where do we go? What do we turn to?
And if you’re overly conservative, if government casts around to find that next big thing, you’ll accuse it of economic planning. But you know, we sort of need some sort of plan for our economy. Because let’s face it, it isn’t just gonna happen on its own.
Remember, most Rhode Islanders feel over taxed because we under tax our wealthiest citizen as a percentage of their income. Since the evidence shows that cutting taxes on the wealthy does not produce jobs, nor economic prosperity, it is time we reverse course. We already know that raising taxes on the elite does not drive them from a state – so essentially we are really talking about a political power question, not an economics outcome question.
That’s why unions groups and the RITE coalition have been saying if you want more bang for our tax buck ( which is essentially Barro’s and, dare I say it, a conservative, argument) we should reverse our current tax structure. We over rely on the property tax and under rely on the income tax. Because our incomes are lower than our regional neighbors, more of our citizens feel the tax bite.
Don’t forget, it is our property tax that places us near the top of all these tax ranking that so many politicians and newspaper editorial boards seem so worried about. Our income tax ranking is in the bottom half of the country.
Pat, I find the people of Rhode Island myopic, provincial, show lack of insight, are emotionally gifted, have poor judgment, are ethically challenged, and are morally bankrupt.
Many of the people are Rhode Island are envious of those who have more than them. These people think they are entitled to government money. Most Rhode Islanders think government is the answer to their problems. They don’t have the insight to know that social services destroy personal ininative to do what is right.
Nice Ed! Your copy and paste skills are top notch. I love reading your misinformed 1st sentence every other post….
Higher taxes DO drive people and businesses out of RI. I moved my family and business out of RI in the early 1990′s and never looked back. There are a lot more businesses like my own that left RI or chose never to locate there in the first place.
Then why do you continue to trash RI. You left, leave the rest of us to the place “you never looked back” and get on with you life. We will get on without you.
Pat Pat Pat…there you go again. Providence is about to go into receivership, the other cities and towns are all on the verge of financial collapse, and the state is at the bottom of every poll that counts. Property taxes, sales taxes, income taxes, sewer taxes, water taxes, surcharges on top of surcharges, drunken politicians, graft and corruption at every turn, and to top it off people like you who just can’t face the fact that they are the problem not the taxpayers.
RI is ripe for a revolution. Unfortunately I’ll miss it. I’m moving to Massachusetts.
Sorry to see you go! I promise, we will somehow manage to survive with you.
without*
Matt Matt Matt…you were right the first time and nothing you can do will change it.
Matt, If you rejects would learn I would not have to repeat myself. Rhode Island will never a place AMERICANS want to live until you dirtbags will evolve and become human beings instead of the Godfather and Goodfella wannabes. You don’t even know in most parts of the country your behavior is not tolerated.
A very cerebral view by Mr. Barro, but it’s simpler than that.
RI has too many “godfather” oriented constituents in this small state. Our predilection to “know someone” in government has been in the drinking water for as long as I can remember (I was born here 63 years ago).
We forget that those little “I baked you a cake” deals add up to huge inefficiencies. Cronyism seems to be in our blood. We need to start fixing that problem first.
Good post, and you’re right. “I know somebody” should be the state motto.
That’s everywhere, it’s called networking. They actually teach it in school too!
We under tax our wealthiest citizens? Are you kidding me? Maybe you can sell that crap to the uneducated but you can’t sell it to those who do their homework. We have other states to compete with, Rhode Island is not in a bubble. If our taxes are higher than our neighbors, the high income earners will simply move to Massachusetts. Then who pays for all of those public sector salaries? The illegal immigrants who are flocking here?
Because we are so small we would be better off lowering taxes in comparison to our neighbors and attracting more business. It would also make sense to lower the gas tax to below that of Massachusetts and Connecticut as well as the cigarette tax, so people will make the short drive to come here.
Most of the cars in the Twin River lot are from Massachusetts. Let them buy their gas and their cigarettes here.
The fixes are easy if our legislators would have some guts. However, as long as their is so much one party dominance, good ideas will never see the light of day. The Democrats continue their dominance and we are sinking deeper and deeper. It is time for balance in our legislature!
If public sector union leadership didn’t have their head buried in the sand so deeply they would figure out that growing business, grows population, which grows taxes and means more union jobs. Stop living in the dark ages! You are part of the reason of why our cities are going bankrupt and now we are all paying for it. We are ranked at or near the bottom in everything a state would want to rank at the top in.
Mr. Crowley, nice try. If a person who makes $50k is taxed at 20% they pay a total of #10,000 in taxes. If a person who makes $1,000,000 is taxed at 20% they pay $200,000 in taxes – that’s 20 times as much. It’s not about percentages it’s about the actual amount of money that is paid in taxes.
What evidence are you referring to when you say that cutting taxes does not create jobs? It’s quite the contrary – free up capital and it will be invested in creating wealth, jobs and prosperity. Yes, then more revenue will come from more jobs and more economic activity.
Also, in case you haven’t noticed, taxpayers and businesses are leaving RI every day. Our workforce is shrinking as small business owners flee to Massachusetts and more tax friendly states.
Presuming the commenter is, in fact, who he claims to be, let me ask:
Why do you get to say ‘what it’s about’? Who elected you governor? Sucky as our unemployment is, it’s better than when you had your hands on the reins.
The amusing part is that you first criticize Pat for not providing supporting statistics – even though he’s written volumes on it with tons of data – and then you yourself make a claim without providing supporting statistics. As we say around these parts, lolz.
Oh, sure, Gover…er, Mr. Robitaille, go get that Minnesotans-going-to-North-Dakota study and I’ll counter with the UMASS Institute for Political Economy study that shows how it withers under even the lightest regression analysis. Better yet, go get that silly thing that those RI right-wingers put out in 2010 during that campaign. That thing is frickin’ hysterical! I mean, they didn’t even try.
Fry
It hard to argue with one fact pointed out by John above: “taxpayers and businesses are leaving RI every day” (being replaced with tax takers).
One thing you can’t argue with is that John’s plan for pension reform would have had less impact on public employees. He proposed honoring all benefits earned up to the date of a conversion to a 401K style plan. So you would have kept your earned “age out” and “COLA’s” under John’s pension proposal.
The current reform plan may not survive a court challenge, but you will still have to wait a decade and maybe get back your benefits.
And thank you “Frymaster” for once again reminding the casual reader just what a bunch of irritating, pompous, condescending jerks so many leftists are. We get it. You’re smarter and better than us. We bow to your greatness. Now perhaps next time you wade into a policy discussion you could ask a friend to try to explain your point so you don’t come off like a complete *&%&$#%?
I would refer you to the Rhode Island economy, the US economy, and the world economy. That SHOULD be all the evidence you need.
However, given the way conservatives argue….
You will want charts and graphs. http://www.ritaxequity.com/index.php?page=facts
Knowing that that will still not be enough still, I will remind the host of this blog that despite his glowing tweet, less than a third of Rhode Island voters believed this philosophy had any merit any more and as of March of this year, 68% of voters think raising taxes on those earning over $250,000 a year is a better way to balance our budget.
So what, 90% of Rhode Island voters are unambitious morons who just want to suck off the public teat.
Nothing new in this article. And nothing will ever change in this tax hell, RI is circling the bowl and soon the flush will be done.
@Pat Crowley:
What is that poll supposed to prove? When you’re stealing from Peter to pay Paul, you can ALWAYS count on Paul’s support. Just because a whole mess’o people believe something ought to be the case, doesn’t mean it’s wise or just.
taxing the wealthiest here in RI would raise $20 million a year. Hardly a drop in a very large, leaky bucket.
Actually, the RITE bill would raise $131 million. This was widely reported; so I’m not sure where that $20million came from. Maybe the same sources that claim the elite are “fleeing” Rhode Island because of high taxes on the rich.
$131 million…really?
What the heck difference would that make on an %8 billion budget?
Unfortunately, we have tax increase advocates like Senator Josh Miller who want to raise the tax on the “allegedly” wealthy individuals who make more than $250,000 per year. However, Senator Miller is not in favors of an increase in the meals tax. I wonder if it’s because he’s a restaurant owner?
Sorry, Pat Crowley, your “tax the rich” philosophy is emotionally satisfying for those who envy others, but is no solution. A good part of the solution IS in reducing government spending to bring taxes down to affordable levels.
Affordable taxes encourage business growth and jobs, which raise all boats.
Well said Art, unfortunately class warfare is the norm in RI, always has been. Pat and his ilk comprise a large minority, if not a slight majority of public opinion in this pathetic little political subdivision masquerading as a state. I wish I knew the answer, but I don’t, so I’m leaving as soon as I can.
Actually affordable taxes is not what encourages jobs growth. It is infrastructure and and educated workforce which Rhode Island struggles with because it must remain somewhat tax competitive with it’s neighbors. It’s the whole race-to-the-bottom.
I shouldn’t say affordable tax rates, because are tax rates now are affordable.
Matt: Your best bet, if you want to help your “side”, would be to keep your mouth shut and your pen in your pocket. Maybe do a spell check now and then (if you know how to do that).
Sol, have you moved yet or do you just like whining?
I have to laugh at some of the comments here, especially by public sector union heads under real and assumed names. I hate to break it to you but as a union member you have not represented me well! In fact, you have lined your own pockets and bought of crony politicians with my dues. Mr. Crowley you really have no idea what you are talking about and I find you rude and arrogant. How do you think 2500 teachers felt in Providence when they all had to pay for David Cicilline’s lies which you so eagerly embraced. You really think most of us are just puppets who follow your every whim?
This state is going down the tubes and you are part of the problem. You should be encouraging tax cuts to promote jobs growth. This is just common sense. What we have been doing is not working! HELLO! You really think anyone with half a brain in his/her head is buying the crap you are selling. The poor union leadership is one of the biggest problems in our state. You should all resign!
[...] a related note, Josh Barro, nudged along by Ted Nesi, recently wrote in Forbes on the question of whether Rhode Island needs economic union with [...]